Mattel Inc.'s recent recalls of toys sourced from China poured more fuel on U.S. consumers' fear and distrust of Chinese goods, following a string of made-in-China product safety scandals this year.
Nearly two-thirds of American consumers would be likely to support a boycott of Chinese goods, pollster Zogby International concluded from a survey of 4,508 adults conducted July 17-19.
That's quite a striking statement. However, buried somewhere later in the analysis, the same poll found that nearly half (49 percent) of the respondents said they will continue to buy products from China.
How does that make sense? A third finding may well explain the contradiction: 86 percent believe cost is the primary motivation for most American consumers.
That's right. Beyond everything else, the bottom line always comes down to money: sourcing or outsourcing cost + brand owner profit + retail profit + middleman cut = consumer-paid price.
To keep the right end of the equation low, big-box retailers and multinational corporations repeatedly remind their overseas suppliers: “Low, the prices must stay low! We give you this opportunity because of our long-term working relationship. If you can't make it anymore, we'll find someone else, in your country or not.”
That doesn't leave much room for Chinese original equipment manufacturers whose equation is: raw material cost + labor cost + other production costs (space, equipment, utility, etc.) + profit = manufacturer's selling price.
It is foreign direct investment and sourcing that have boosted the Chinese economy in the past three decades. It made China the world's factory, but it also raised Chinese workers' wages and all other business costs in a country that recently transitioned from poverty to the planet's third-largest economy.
Raw materials nowadays have global prices. With extremely low per capita natural resources, China has little advantage.
The currency re-evaluation also discounts any company, domestic or foreign-invested, that manufactures in China and sells overseas.
And the Chinese government, under heavy pressure to fix the country's trade surplus and its rapidly deteriorating environment from sources domestic and abroad, has taken major steps to cut exports of cheap, labor-intensive products.
The Ministry of Commerce has gradually but significantly reduced the refund for export value-added tax. It also ordered toll processors to pay a deposit equal to half the amount they spend on imported materials, a big challenge for low-margin businesses like toy manufacturing.
Lee Der Industrial Co. Ltd., in the center of the recall drama, is a Hong Kong-invested company with all its production in the mainland.
The Hong Kong Trade Development Council said there are more than 1,000 Hong Kong-invested toy factories in the mainland; 60 percent of them export directly and the rest mostly go through Hong Kong to other countries.
Hong Kong investment plays a very significant role in China's manufacturing industry, especially in the Guangdong Province production hub. Besides the geographic proximity, Hong Kong investment is considered and treated as foreign investment. That, in the old days, has meant tax breaks and all types of preferential policies.
But the old days are nearing their end. The Chinese government passed a new business income tax law in March to eliminate the tax reductions and exemptions for manufacturing foreign-invested enterprises. The new law will take effect Jan. 1.
Export manufacturers are squeezed from all directions and pushed to the edge. Many subcontract work to smaller companies that are willing to bear the low prices in order to keep their factories running.
Predictably, a lot of China's low-end manufacturers will shut down, or switch to more value-added businesses. That seems to be what the Chinese government expects, partially hoping to solve trade friction.
Who gets hurt? In America, it's consumers because we are exposed to toxic food, toothpaste and other unsafe products. On the other side of the ocean, it is the Chinese exporters, their workers, local economies, China's entire export-led economy, employment rate and social stability.
But no reason makes a safety problem legitimate. Someone should take responsibility and prevent it from happening in the future.
Many urge the Chinese to do more to increase standards and improve enforcement. That's theoretically correct but not immediately achievable. Similar product scandals always existed and still happen in China every day. Chinese consumers resent it, too, but the cutthroat capitalism will be hard to rein in any time soon.
If U.S. importers would do a better job inspecting goods, we could be more reassured.
Mattel's CEO said in a news conference that the company has implemented a new three-point check system, covering material suppliers, vendors and final products.
So what was it like before? I can't think of any reasonable quality-control system that doesn't cover all procedures.
Recently, I was watching CNN, and a viewer's feedback caught my eye: Why not move toy manufacturing back to the United States? Aren't we willing to pay a little more to keep the jobs in this country?
Unfortunately, I do not see that happening. Those manufacturing jobs may shift from China to India, Vietnam or Indonesia, where expected low costs are still possible — yet with no guarantee of safety — but they won't be returning to America.
Wait a minute. When did globalization turn from win-win to lose-lose? Or, who is the one winning that we don't see?
Sun is a Plastics News staff reporter and Asia specialist based in Akron, Ohio.